The age-old rate debate. In this blog post, we talk a bit more about whether variable rate mortgages are better than fixed.
For anyone interested in entering the housing market, understanding mortgage rates is a key factor. Your mortgage makes up a large chunk of your home expenses, so it has a huge impact on your finances. Rates in 2020 dropped to an all-time low – so what are the 2021 rates shaping up to look like?
The Bank of Canada is not expecting a busy year in terms of any changes to its rates. While their activities might be slow, the real estate market continues to move quickly.
Read on to see how mortgage rates in 2021 will affect the housing market and your plans to buy.
Rates you should follow
The overnight rate
The overnight rate is one of the Bank of Canada’s most important terms. This is the rate that big financial institutions and banks borrow and lend at. The Bank sets the target for this rate.
In December 2020, the Bank made an announcement to keep its target at 0.25%. The goal is to keep the rate at its current level until the Bank achieves its inflation goal. The Bank originally set the 0.25% target rate in March 2020, dropping down from previous rates of 0.75%, 1.25%, and 1.75%. The overnight rate affects interest rates for mortgages, making it an important rate to follow in 2021.
The prime rate
The prime rate, or prime lending rate, is another term to familiarize yourself with. This is the interest rate major banks use to set lending rates for variable loans. Overnight rate and prime rate directly affect one another, and they obviously impact mortgage rates. When the Bank of Canada shifts its overnight rate, lenders will usually change their prime rates accordingly.
How will this affect mortgage rates in 2021? If you’re considering a variable-rate mortgage, your rate will depend on the prime lending rate. Whenever the prime rate changes, so will your mortgage interest rate.
The prime rate currently sits at 2.45% in Canada. Ten years ago, in January 2011, the rate was 3%. Even just one year ago, the prime rate was 3.95% before dropping last spring to the rate we have today. The drastic drop came shortly after the Bank moved its overnight rate to 0.25% as a response to COVID-19. What do these numbers mean? Basically, prime is very low in Canada. This means mortgage rates in 2021 will also stay low, and variable-rate mortgages shouldn’t see much change. The Bank of Canada has committed to keeping rates low until 2023, which is fully explained in its announcement from December 2020.
Entering the market? Start early!
Everyone’s financial situation is different. Just like every other year, not everyone will be approved for the same mortgage rate in 2021. Still, these low rates have presented some big changes in the housing market this year that many people have never experienced before.
Prepare, prepare, prepare
The largest change in 2021 is an increased need to prepare. If you’re hoping to enter the market, you need to get yourself ahead of the curve. Yes, this is a great time to buy a home for many reasons. Low rates – and a promise from the Bank to keep those rates down – leave few people in doubt about the advantages of entering the market. On the other hand, these consumer-benefitting rates mean competition is growing rapidly. Demand has skyrocketed, which has naturally caused a supply shortage.
Atlantic Canada is one of the fastest growing areas in the country, and Halifax offers a specific set of advantages. Halifax has city appeal, while still maintaining an excellent quality of life, with affordable and accessible homes. We’re in a bit of a now-or-never situation here, which is why it’s important to start planning sooner rather than later.
Getting a mortgage set up puts you ahead, and saves you time down the line when you’re ready to go in on a home you want. If you want to get started on your mortgage process, consult an unbiased mortgage broker to help put you on the right track! You can contact us at Clinton Wilkins Mortgage Team at 902-482-2770 or get in touch with us here.